INTERNAL CONTROLS AND THE ASSESSMENT OF CONTROL RISK

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CHAPTER 9

• INTERNAL CONTROLS AND THE ASSESSMENT OF CONTROL
  RISK

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CLIENT RESPONSIBILITIES

• DESIGN OF SYSTEM
• REASONABLE ASSURANCE
• INHERENT LIMITATIONS
• MANAGEMENT OVERRIDE
• HUMAN ERROR
• COLLUSION
• OBJECTIVES
• RELIABILITY OF FINANCIAL REPORTS
• EFFECTIVENESS AND EFFICIENCY OF OPERATIONS
• COMPLIANCE WITH LAWS

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AUDITOR RESPONSIBILITIES

• UNDERSTAND INTERNAL CONTROLS
• ASSESS CONTROL RISK
• AUDITOR CONCERNS
• RELIABILITY OF FINANCIAL REPORTS
• CONTROLS OVER CLASSES OF TRANSACTIONS

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COMPONENTS OF INTERNAL CONTROL

• CONTROL ENVIRONMENT
• INTEGRITY AND ETHICAL VALUES
• AUDIT COMMITTEE
• MANAGEMENT PHILOSOPHY
• ORGANIZATIONAL STRUCTURE
• ASSIGNMENT OF AUTHORITY
• HUMAN RESOURCES POLICIES

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• RISK ASSESSMENT
• MANAGEMENT METHODS FOR IDENTIFICATION AND
  ANALYSIS OF BUSINESS RISKS
• CONTROL ACTIVITIES
• SEGREGATION OF DUTIES
• SEPARATION OF CUSTODY FROM RECORDING
• SEPARATION OF AUTHORIZATION FROM EXECUTION
• PROPER AUTHORIZATIONS
• ADEQUATE DOCUMENTS
• PHYSICAL CONTROLS
• INDEPENDENT CHECKS

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• INFORMATION AND COMMUNICATION
• INFORMATION SYSTEMS
• CHANNELS OF COMMUNICATION
• MONITORING
• PERIODIC ASSESSMENT AND FEEDBACK
• INTERNAL AUDIT
• AUDIT COMMITTEE

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OBTAIN UNDERSTANDING AND ASSESS CONTROL RISK

• REASONS FOR OBTAINING UNDERSTANDING
• AUDITABILITY OF ENTITY
• POTENTIAL MISSTATEMENTS
• ACCEPTABLE DETECTION RISK
• DESIGN TESTS

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• OBTAIN UNDERSTANDING
• INQUIRY OF CLIENT
• REVIEW DOCUMENTATION
• WALK THRU
• DOCUMENT UNDERSTANDING
• QUESTIONNAIRES
• FLOW CHARTS
• NARRATIVES
• ASSESSMENT OF CONTROL RISK
• IDENTIFY TRANSACTION OBJECTIVES
• IDENTIFY SPECIFIC CONTROLS
• IDENTIFY WEAKNESSES

9

• CONSIDER IF LOWER CONTROL RISK COULD BE SUPPORTED
• TEST OF CONTROLS
• INQUIRIES OF CLIENT
• EXAMINE DOCUMENTS AND RECORDS
• OBSERVE CLIENT PERSONNEL
• REPERFORM CLIENT PROCEDURES
• SAMPLE DRAWN FROM ENTIRE PERIOD
• REASSESS CONTROL RISK BASED ON RESULTS
• REVISE PLANNED SUBSTANTIVE TESTS